[R-SIG-Finance] A question on Forward Price
Christofer Bogaso
bogaso.christofer at gmail.com
Mon Jun 30 00:16:52 CEST 2014
Could you please elaborate why you are saying F = s+C is wrong? What
is right then? I assumed CoC consists of cost of financing, storage
cost, CY and other related costs
My original question was very straightforward. If I see for a
underlying which is storable and consumable, and forward curve for
that is moving more and more in backwardination then is it not
straightforward to think that market is expecting future spot price
would be higher due to future supply disruption?
I was looking for some yes/no answer and why...
Thanks and regards,
On Mon, Jun 30, 2014 at 3:07 AM, Michael Weylandt
<michael.weylandt at gmail.com> wrote:
> If p => q, and we can observe ~q, we should doubt p.
>
> More directly, electricity is a case where your assumptions (F=S+C) about forwards pricing are transparently wrong.
>
> You need to think more about how forwards are really priced and then your questions about crude futures will sort themselves out.
>
>> On Jun 29, 2014, at 5:09 PM, Christofer Bogaso <bogaso.christofer at gmail.com> wrote:
>>
>> Ofcourse Electricity can not be stored or storage cost would be
>> extraordinarily high. Therefore it would have zero CY. I feel Power
>> prices should always be in contango
>>
>> On Mon, Jun 30, 2014 at 2:45 AM, Michael Weylandt
>> <michael.weylandt at gmail.com> wrote:
>>>
>>>
>>>> On Jun 29, 2014, at 4:07 PM, Christofer Bogaso <bogaso.christofer at gmail.com> wrote:
>>>>
>>>> Hi again,
>>>>
>>>> I would like ask a small question however not really related to R.
>>>>
>>>> We all know that non-arbitrage Forward price of any underlying (except
>>>> perhaps Interest Rate) is just the spot price plus the cost of carry.
>>>> Cost of carry again depends on cost of borrowing and convenience
>>>> yield.
>>>
>>> Do we know that?
>>>
>>> Consider energy (electricity) futures....
>>>
>>>>
>>>> Therefore my question is, is it true that for most consumable
>>>> commodity like agricultural commodity, crude oil, the Forward market
>>>> will mostly remain in backwardination? Specially for Crude oil it
>>>> looks always remains in Backwardination. Because since they are
>>>> consumable then buying now and storing would be more economical than
>>>> buying it Forward for future use, hence CY would be higher.
>>>>
>>>> Another related question is, for Crude oil if Forward market becomes
>>>> more in Backwardination then does it imply that, in Future it's price
>>>> is expected to increase, keeping everything else same?
>>>>
>>>> I really appreciate your thought on the same.
>>>>
>>>> Thanks and regards,
>>>>
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